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Google to Spend $2.1 Billion on Manhattan Office Building

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The technology giant has built a sprawling campus on the West Side of Manhattan and has 12,000 employees in the city.

Google said its decision to purchase the St. John's Terminal building reflects its confidence in New York City's vitality.Credit...Brittainy Newman for The New York Times

Sept. 21, 2021

Google announced on Tuesday that it would spend $2.1 billion to buy a sprawling Manhattan office building on the Hudson River waterfront, paying one of the largest prices in recent years for an office building in the United States and providing a jolt of optimism to a real estate industry lashed by the pandemic.

The transaction comes during a precarious period for New York City's office market, the largest in the country, as the swift embrace of remote work and the shedding of office space have presented the most serious threat to the industry in decades.

While Manhattan has a glut of office space available for lease, setting record vacancy levels during the pandemic, the four firms that make up so-called Big Tech — Amazon, Apple, Google and Facebook — have staked a bullish position on the future of New York.

The companies have rapidly increased their operations and work force, one of the few bright spots for New York, which has been hit harder by the pandemic's economic toll than any other major American city.

Google was already leasing but not yet occupying the 1.3 million-square-foot property, a former freight terminal near the Holland Tunnel known as St. John's Terminal that is being renovated and expanded. The company has 12,000 corporate employees in New York City — its largest satellite offices outside its California headquarters — and said on Tuesday that it planned to hire another 2,000 workers in the city in the coming years.

"New York's energy, creativity and world-class talent are what keep us rooted here and why we're deepening our commitment with plans to purchase St. John's Terminal," said Ruth Porat, the chief financial officer at Google and its parent company, Alphabet. "We look forward to continuing to grow along with this remarkable, diverse city."

Collectively, the four tech giants employ more than 22,000 people in their Manhattan offices. But their workers are unlikely to work five days a week in the office again anytime soon. Many tech companies have said they will allow employees to work remotely in a hybrid arrangement even after the pandemic ends. Google recently postponed its return-to-office plans to early 2022 because of the highly contagious Delta variant.

The speed with which the economy recovers in New York City, especially Manhattan, could hinge on office buildings. Before the pandemic, they drew a million workers every day, and those workers' spending on everything from morning coffee to business lunches to after-work Broadway shows supported thousands of businesses. The absence of those commuters has led many stores and restaurants to close in Manhattan.

Companies have embraced remote work during the pandemic in ways they never had before, deciding that employees would be able to continue to work from home for some or all of the week after the pandemic eventually ends and even hiring new employees who plan to stay away from the office indefinitely.

As a result, large employers like Condé Nast and JPMorgan Chase have relinquished chunks of office space, contributing to nearly 19 percent of Manhattan offices being available for rent, according to Newmark, a real estate services firm, nearly double the average rate over the last decade.

About 28 percent of office workers in the New York City region, which includes parts of New Jersey, Connecticut and Pennsylvania, had returned to the office as of last week, more than double the rate from a few months ago, according to Kastle Systems, a security company that tracks employee card swipes in office buildings. The nationwide average was 33.6 percent, Kastle said.

Kate Lister, the president of Global Workplace Analytics, a consulting firm advising companies on their return-to-office policies, said that hybrid work would remain a permanent feature of work culture after the pandemic.

Office space is not going to disappear, but, Ms. Lister added, "The total space will come down."

Still, elected officials in New York sought to cast Google's announcement as a sign of the city's rebound.

"This announcement from Google is yet another proof point that New York's economy is recovering and rebuilding," Gov. Kathy Hochul, a Democrat, said in a statement. "We are creating jobs, investing in emerging industries, lifting up New Yorkers, and together, we are writing our comeback story."

Mayor Bill de Blasio called the deal "a historic investment in New York City." The transaction was first reported by The Wall Street Journal.

When the St. John's building opens after construction is finished in mid-2023, Google will have more than 3.1 million square feet of office space in New York, making it one of the largest leaseholders in the city.

Google's New York presence began in 2000 with a single employee in sales who worked out of a Starbucks. The company sealed its commitment to the city in 2010 with the $1.8 billion purchase of a 15-story building in Chelsea.

Over the past decade, Google has rapidly increased its work force in Manhattan, hiring young engineers from the region's universities, attracting tech workers who do not want to live in Silicon Valley and expanding its marketing and sales departments. The company has added 5,000 employees in New York since late 2018.

The terminal building that will be home to Google's new office is in Hudson Square, a neighborhood on the West Side of Manhattan between TriBeCa, Greenwich Village and SoHo. Many creative, media and tech companies have offices there, including the website builder Squarespace and the eyewear company Warby Parker. Disney has also selected the neighborhood as the site of the new headquarters for its New York office.

In addition to businesses, the area has a growing residential population, after a rezoning in 2013 led to a boom in the development of new high-rise and condo buildings.

In recent years, Google's main rivals, notably Amazon and Facebook, have also invested heavily in New York City, turning a swath of the West Side, from Midtown to Lower Manhattan, into a thriving tech corridor.

Facebook has acquired more than 2.2 million square feet of office space in Manhattan, most of it signed just before or during the pandemic, and has 4,000 employees in the city. Amazon, whose corporate offices are largely clustered near its competitors on the West Side of Manhattan, also bought the former Lord & Taylor building on Fifth Avenue for $1.5 billion in March 2020.

And while the tech industry has been among the most amenable to remote work, the companies are still gobbling up real estate, a potential sign of their hiring pace and of a reimagining of office space.

Tom Wright, president of the Regional Plan Association, a research and advocacy group, said that even though tech employees may only come into the office a few times a week, they may want more space between desks or bigger conference rooms. In particular, he said, offices need to figure out how to accommodate hybrid meetings in which some participants are in person while others are videoconferencing in from home.

"During the pandemic, people assumed an across-the-board reduction in activity and demand for office space when actually it's a much more complex equation," Mr. Wright said.

The growing footprint of Google and other tech giants in New York reflects their increasing importance to the city's economy. Economists expect the tech sector to be a primary engine for job growth after the pandemic.

In the first eight months of the pandemic, there were more job openings in technology roles than in any other occupation in New York City, according to an analysis of job postings by the Center for an Urban Future, a nonprofit research group. During that period, demand for tech workers was more than double that for finance.

The tech sector has become New York City's most reliable source of new middle- and high-wage jobs, researchers said, with average wages in tech jobs 49 percent higher than the average private-sector wage.

But the presence of tech giants in the city has also been a source of tension, most notably in 2019, when Amazon abandoned plans to build a new corporate campus with 25,000 employees in Queens after facing opposition from progressive activists, elected officials and union leaders.

They were angered chiefly by billions of dollars in government tax breaks and incentives offered to Amazon as a lure.

Less than a year later, Amazon signed a lease for office space in Midtown Manhattan near the Hudson Yards development, the start of a multiyear expansion in New York City.

Julie Samuels, the executive director of Tech:NYC, an advocacy group for the tech industry, said that despite the collapse of the Amazon deal in 2019, tech companies are still drawn to New York City because of its concentration of diverse tech talent.

"I have not heard of another company either pulling back on plans to be here or deciding not to come here because of Amazon," Ms. Samuels said. "We were worried about that."

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